The Issues ~

Is Spotify Ruining the Music Industry?

An FKD Feature exclusive

On November 3rd, 2014, Spotify users turned on their laptops and mobile devices and were startled to find a gaping hole in the seemingly endless offering of on-demand music.

Not only would the ears of millions of Spotify subscribers be deprived of Taylor Swift’s new album, 1989—which would go on to be the best-selling record of the year—but they would soon realize that Ms. Swift’s entire catalogue had been pulled from Spotify.

“I think there should be an inherent value placed on art,” said Swift in an interview with TIME. “I didn’t see that happening, perception-wise, when I put my music on Spotify.”

Is Spotify an unfair, nefarious, sadness-monster seeking to lay destruction to the music industry or is Swift a savvy businesswoman who knows that the power of free press is worth more than the profits from streaming?

We tend to regard February 3rd, 1959 as The Day the Music Died, but music journalists and over-Twittered fans are starting to view November 3rd with similar poignancy.

The conversation surrounding Spotify is just one of the many barometers for the viability of music as a commodity in the 21st century. What does the future of music look like?

Conventional wisdom hasn’t shifted that much in the past 15 years. As music has become increasingly more available, it has become proportionally less valuable.

The entire model of the music industry used to revolve around an artist’s ability to land a record deal. Without one, it was basically impossible to make a living as an artist. In the old model, artists would sign to a major label, receive all-around support, get played on the radio and sell records based off of the strength of their radio promotion.

Those days are over.

In fact, “recording contract” is starting to sound as dated as “compact disc” and “Sugar Ray.”

As in many other industries, technology has significantly lowered artists’ barriers to entry. Thanks to the Internet, it’s easier than ever to write, record and distribute music. This paradigm shift has led to an oversaturated industry. While this is a good thing for consumers – there are more choices than ever for an average listener – this is obviously a challenge for artists, who struggle to grab a perpetually thinning slice of a perpetually shrinking pie.

Despite a growing digital market, digital sales have been unable to make up for losses in physical sales. Piracy remains a huge problem, and industry leaders struggle to address a fundamental question: why should consumers pay for a product that they can easily get for free?

Digital has been unable to make up for losses in physical sales. | Source: Spotify Artists

Enter Spotify

Launched in Sweden in 2008 by Daniel Ek, Spotify was first available in Europe before coming in the United States in July 2011.

In the beginning, the majority of Spotify users utilized the platform’s free, ad-supported service. In doing so, Spotify mirrored the model of the already popular streaming service Pandora, but instead of allowing users to create radio stations that played random music based off of artists or genres that users selected, Spotify allowed users to play whatever music they wanted from their database, on demand.

The service took off. As of December 2014, Spotify has 60 million users worldwide. While 45 million users don’t pay a monthly fee, they still “pay” for the music that they listen to by also listening to paid advertisements.

However, more and more users have begun to pay $9.99 per month for a premium subscription to the service, which features zero ads and allows for unlimited streaming. Spotify argues that the average U.S. consumer typically spends about $5 a month on music. By offering a premium subscription option, the streaming service contends that they have effectively doubled those consumers spending habits.

In other words, while the average Spotify premium user will spend a guaranteed $120 a year on music, the average consumer will spend less than $60.

Other artists have joined in, but their comments can generally be distilled into three points:

(1) Spotify doesn’t pay out enough money to artists.

(2) Artists who pull their catalogues from Spotify face the risk of being left out and ignored by fans.

(3) Spotify makes it more difficult financially for a musician to succeed, and in the long-term, might lead to a decrease in people who become professional musicians.

While Spotify has a somewhat complicated system for calculating what it pays artists in royalties, it’s not impossible to understand the service’s model. To date, Spotify has paid out $2 billion in royalties to rights holders — the people who own copyrights and publishing. That means that Spotify pays out 70 percent of its revenue to rights holders and retains the other 30.

That hardly seems exploitative. While an imperfect service, Spotify stands as the most effective, viable answer to challenges disrupting the music industry.

Besides, artists do still make money off of the service. As Daniel Ek defended the service in the wake of SwiftGate:

Let’s be clear about what a single stream – or listen – is: it’s one person playing one song one time. So people throw around a lot of stream counts that seem big and then tell you they’re associated with payouts that sound small. But let’s look at what those counts really represent. If a song has been listened to 500 thousand times on Spotify, that’s the same as it having been played one time on a U.S. radio station with a moderate sized audience of 500 thousand people. Which would pay the recording artist precisely … nothing at all. But the equivalent of that one play and its 500 thousand listens on Spotify would pay out between three and four thousand dollars. The Spotify equivalent of ten plays on that radio station – once a day for a week and a half – would be worth thirty to forty thousand dollars.

Ek projects that payouts for a top artist like Taylor Swift(before she pulled her catalog) were on track to exceed $6 million a year. Ek expects that number to double again in a year.

Whatever artists earn from Spotify royalties is undeniably more than what they would earn from consumers pirating their music for free. In fact, what Spotify has done is establish that consumers are willing to pay for their music and has identified the price point where that will happen.

Diversifying Tastes

While established artists who were successful following the old record industry model gripe about their payouts, newer artists actually benefit from Spotify’s discovery platform.

Look at it this way: when you budget out how much you’re going to spend on individual music tracks or albums, you’re less likely to take risks on what you spend that money on. You’re more likely to purchase a few songs that you’ve heard on the radio than to buy a new EP from a band you’ve only heard of in passing. In many ways, Spotify is the new radio. It takes the idea of sampling an artists’ catalogue and multiplies it exponentially to encompass unlimited discovery. This is a good thing for consumers and a good thing for artists looking for a new audience.

Can we really label Spotify as the enemy of the music industry? While it may not be the end-all-be-all future of the music industry, but it sure feels like a step in the right direction.

There are still mountains to climb. While income inequality for everyday Americans consistently makes national headlines, it’s mirrored in the way that the music industry operates. The top 1 percent of bands and solo artists now earn 77% of all revenue from recorded music.

Maybe it’s time to turn the industry on its head and see what happens when we let independent artists and up-and-coming bands stand a chance to be profitable. Maybe it’s time for artists to stop complaining about the state of the industry, and actually start innovating. Maybe, more than ever, it’s time to look toward the future for solutions.